Realizing their severe limitation in larger cities and urban markets, Wal-Mart (NYSE: WMT) is planning to move into small convenience stores near you. It’s a move meant to battle back against its newly minted “dollar store” competition and revitalize weak domestic sales.
The company announced that it will discuss detailed business plans for the new venture later this year, though the structure would similarly resemble convenience store operations like those currently run in Latin America.
Wal-Mart this summer had been looking at select areas in Chicago, Detroit, San Francisco, and Los Angeles – at locations between 20,000 and 50,000 square feet.
Sprawling and a well-known suburban mainstay, the superstore has for some time been pondering how to move into the urban market. Overall sales have dropped in recent quarters, as consumers are hitting up the even cheaper so-called “dollar stores.”
Dollar stores in the last few years have been nabbing customers at an stunning rate – and keeping operating costs low. While Wal-Marts require acres and acres of land to set up shop, stores like Family Dollar (NYSE: FDO) are in strip malls with low rent and overhead – and close to where low-income residents live. And where a Wal-Mart store averages 185,000 square feet, “dollar stores” average 7,000 square feet. Frugal urban shoppers reach the smaller stores quicker, and get in and out faster.
Meanwhile, the megastore’s new competition has been ramping up service efforts and offerings. Family Dollar now touts an increase in food (brand names such as Kraft food, Smucker’s jams and even Prego sauces), paper products and health/beauty supplies. Dollar Tree (NYSE: DLTR) will soon add 220 new stores, Dollar General (NYSE: DG) has plans for 660 new stores and Family Dollar is set to build some 200 new stores, all by year’s end.
The message? Watch out, Wal-Mart.
Chicago may soon be the first to see the new stores, as the company enters the market later this year and into 2011, with more than 20 stores, some supercenters and others small-format stores. At the same time, Wal-Mart is testing online purchases delivered free to FedEx outlets in a bid to boost sales in urban markets such as Boston, where it has no store presence.
Considering the success that dollar stores are seeing, coupled with the seeming disdain the company had for the urban markets, it’s unknown whether customers will embrace a downtown Wal-Mart. One thing’s sure: Wal-Mart is gearing up for a fight.
As of this writing, Burke Speaker did not own a position in any of the stocks named here.
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